US PRESIDENT Barack Obama’s administration is planning a sweeping overhaul of regulations governing the financial industry, including stricter rules for hedge funds, ratings agencies and mortgage brokers, according to US newspaper reports.
The New York Timesreported yesterday that the president intends to move quickly to bring largely unsupervised financial instruments into a strict regulatory framework in an attempt to prevent a repeat of the most recent financial crisis.
Among the proposals is a move to end conflicts of interest on the part of ratings agencies, which are paid by the companies whose financial products they help to design and subsequently rate.
Derivatives such as credit default swaps, a form of insurance against loan defaults, would be traded for the first time through a central clearing house to make them easier to supervise.
Mr Obama’s top economic advisers believe lax regulation was a major cause of the crisis that has rocked the global banking system and swept away Wall Street’s biggest investment banks.
The president hopes to outline his regulatory reform before he travels to London on April 2nd for a meeting of the Group of 20 industrialised nations that will address the financial and economic crisis.
The administration is also working on a revised version of the plan to distribute hundreds of billions of dollars approved by Congress to shore up the US banking system. Mr Obama is expected to refocus the plan, approved under former president George W Bush, towards reducing home foreclosures and buying or issuing guarantees for distressed assets that have been discouraging private investment in banks.
“Whatever we have to do will have to be clearly explained to Congress and to the American people as to what the purpose of the money is, why it is urgent, and then accountability for it as it is distributed,” House speaker Nancy Pelosi said yesterday.
“If they come back there’s going to have to be a justification because people will be very, very disappointed in how this money was dealt with at first.”
Speaking on This Weekon ABC News, Ms Pelosi said the federal government would have to take more control of banks that received public funds, but stopped short of describing the move as nationalisation. "If we are going to put money into the banks, we certainly want equity for the American people. In other words, if we are strengthening them, then the American people should get some of the upside of that strengthening. Some people call that nationalisation. I'm not talking about total ownership," she said.
“Would we have ever thought we would see the day when we’d be using that terminology – nationalisation of the banks? You see the impact it has on the stock market. Just terrible in terms of the bank stocks going down.”
